Palm trees and buildings in Saudi Arabia

Saudi Arabia GDP Q2 2019

Saudi Arabia: Oil production curbs continue to weigh on economic growth in Q2

The economy logged the weakest growth rate in one-and-a-half years in the second quarter as Saudi Arabia continued to overdeliver on its oil production targets agreed with OPEC+. GDP expanded 0.5% year-on-year in the second quarter, less than one-third of the first quarter’s 1.7% expansion.

Despite the deceleration, Q2’s print masks diverging performances among the main sectors of the economy. The oil sector contracted a sizeable 3.0% year-on-year in Q2 (Q1: +1.0% year-on-year), mostly reflecting a decline in oil production in compliance with the OPEC+ deal. According to the latest report by OPEC, Saudi Arabia pumped 9.8 million barrels per day (mbpd) in Q2 compared to 10.1 mbpd in the same period last year. Moreover, OPEC oil prices averaged lower in Q2 2019 (USD 68.2) than in Q2 2018 (USD 72.0). In contrast, the non-oil economy expanded 2.9% on Q2, up from Q1’s 2.1% rise and the fastest increase in nearly four years. The retail and the construction sectors expanded strongly following dismal performances in the previous years. Overall, the non-oil sector benefited from fiscal stimulus and healthy credit growth.

Looking forward, oil production cuts will continue to undermine economic growth, while low oil prices could force the government to reduce its support to the non-oil sector.

As Giyas Gokkent, MENA chief economist at JPMorgan, points out:

“Barring conflict which disrupts oil production elsewhere, we do not see much scope for a sharp increase in Saudi oil production in the medium term. Meanwhile, Fed’s dovish shift should provide a welcome monetary policy stimulus to nonhydrocarbon activity. […] However, oil prices remain under pressure due to rising US production and weaker global growth. As a result, the fiscal deficit has again widened and we expect the authorities to opt for fiscal restraint in the 2020 budget which could weaken nonhydrocarbon growth. Without higher oil prices and/or deeper reforms, we expect growth to remain in low single digits in the medium term.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest